Macquarie Group executive David Standen told the Federal Court that it paid more than $10 million for Nuix share options that were essentially worthless as a golden handshake for its former chief executive Eddie Sheehy.
Sheehy, a co-founder of tech company Nuix and chief executive between June 2006 and January 2017, has been locked in a long-running legal dispute with the company about whether he is entitled to 22.6 million shares in the business based on share options he was given.
These shares would have been worth as much as $268 million when the stock peaked in January 2021.
Standen signed documents showing Sheehy had 570,000 options over shares when Macquarie invested in the business in 2011 and 2016, but he argued that the options had been granted but were not exercisable because there had not been a sale of the business. They had effectively expired, or lapsed.
When Macquarie paid Sheehy $10.3 million for 20 per cent of these options in 2016, it was not in recognition of the commercial value of these options, it reflected an ex gratia payment, according to Standen. That is, the payment reflected a commercial objective rather than the legal transaction taking place.
“The commercial objective was to compensate Mr Sheehy for his contribution to the company, and to ensure that he supported the company going forward with an orderly transition in the business,” Standen said.
Fellow Macquarie executive and current Nuix board member, Dan Phillips, later told the court that some of the options acquired by Macquarie had lapsed and agreed that the payment had been made to reward Sheehy for his work and smooth the transition to a new CEO.
Standen was asked why there was no record of the commercial nature of the transaction in any documents or boardroom minutes at Nuix. “We just didn’t record it,” Standen replied.
Macquarie used these options to acquire Nuix shares and boost its stake in the company to about 50 per cent. Standen told the court that any conditions over the options had been removed.
Nuix was the highest profile float of 2020 with Macquarie cashing in $575 million worth of shares as part of the sale and retained a 30 per cent stake in the business. Standen left the Nuix board just before its float.
Sheehy is arguing in the Federal Court that a 2008 agreement relating to his options in the business, and a subsequent splitting of each of Nuix’s shares into 50 shares in 2017, entitled him to 50 shares for each of his 453,273 options that remained after the Macquarie sale. He told the company in November 2020, shortly before the initial public offering (IPO) in December, that he wanted to exercise his options.
The company says he is entitled to one share per option, and that the dispute has already been resolved by the settlement of an earlier NSW Supreme Court dispute. There is also a legal question about whether a public float amounted to a “sale of the business” that triggered a right to exercise the options.
Sheehy argues he has suffered a loss of between $96.9 million and $182.4 million depending at which point he could have sold these shares. He appeared in the Federal Court witness box in Sydney on Tuesday and told the court his understanding was that “I was going to get 22 million shares” in the data analytics software company.
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